Banks recover interest from available credit of borrowers

Amid Tarai unrest and India’s trade embargo, businesses are finding it hard to generate enough cash flow to service loans

Dec 21, 2015-With borrowers failing service their loans timely, banks have started to recover interest from the loanees’ available credit.Available credit is the difference between the amount of the credit limit and the amount that has already been borrowed. Available credit is considered readily available for withdrawal.

Amid Tarai unrest and India’s trade embargo, businesses are finding it difficult to run their operations and generate enough cash flow to service their loans.

Stating that recovering interest from the loanees’ available credit would be helpful in the short term, bankers, however, admitted such a practice would pose risk to the banks as the borrowers’ liabilities go up.

Federation of Nepalese  Chamber of Commerce and Industry (FNCCI) President Pashupati Murarka himself had to involve in such a practice after he found it hard to pay interest. “The situation is such that most of the companies are doing so,” said Murarka. The practice might give some respite to the borrowers for the moment, but it increases the risk of businessmen facing shortage of working capital when businesses resume, said Murarka.

FNCCI has said more than 2,000 industries, particularly in Tarai, have remained closed for the last four months due to the Tarai unrest and Indian embargo.

The country has incurred economic losses amounting to more than Rs200 billion, said the FNCCI, estimating the detention charges for vehicles stranded at border points in excess of Rs7 billion.

Bankers say the demand for credit has remained low as businesses struggle. But the Nepal Bankers’ Association data suggests something different. Since India imposed the blockade on Sept 22, lending growth has been higher than deposit growth. While the banks’ deposit mobilisation grew by Rs31 billion from the period between Sept 25 and Nov 27, their credit disbursement increased by Rs41 billion. “Banks recovering interest from available credit could be one of the reasons why the lending seems to have grown,” said Himalayan Bank CEO Ashoke Rana.

According to bankers, most of borrowers have not fully utilised their credit line after the political crisis began. So banks have also started to reduce the limit. “If one gets a limit of Rs10 million, banks have been reducing it to Rs5-6 million,” said Rastriya Banijya Bank CEO Krishna Prasad Sharma.

Published: 21-12-2015 09:03

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